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    Published on: June 13, 2011

    by Kevin Coupe

    Almost exactly three years ago, Time magazine reported on - and MNB took note of - hotel companies that are creating a new kind of experience for road warriors under the age of 35 - the point being that traditional business models have to constantly go through the act of reinvention if they are to remain relevant, especially to the next generation of consumers.

    Among the companies mentioned in the piece was Aloft, from Starwood Hotels, which MNB subsequently reported on. An excerpt, from the 4-9-09 OffBeat:

    “Even though I am not exactly the hip and urban traveler that the chain is seeking ... I am here to report that these guys are onto something and that retailers should pay attention to the ways in which Starwood is rethinking the hotel business for the next generation of consumers. The Minneapolis Aloft has a futuristic look to it, all glass and metal. Walk into the lobby, and you actually find a kind of ‘great room’ – the front desk is circular and near the middle of the room, and there is a large bar, a pool table, plenty of flat screen televisions, a news feed running across the top of the wall, and lots of conversation pits where people were engaged in animated and sometimes intimate conversation. It has a kind of neighborhood vibe to it, with real personality and energy, and not at all antiseptic.

    “The rooms have a neat kind of minimalist décor, dominated by a very comfortable bed and a 42-inch flat screen television (which I’d rather look at than the crappy art you generally find on hotel room walls). The emphasis is on comfort and function rather than form, and it works.”

    The Wall Street Journal the other day advances the story with another piece about the trend, noting that hotel chains are now focusing on the food and beverage experience as way of differentiating themselves. Perhaps the most important observation in the piece comes from Hyatt’s Gary Dollens, who says that the chain had to completely change the way it approached foodservice availability. "Nobody is on a schedule like they were on in the past. You're working at night and you eat when you want to eat and drink when you want to drink," he says.

    And so, “The company designed its Hyatt Place lobbies with a central counter where guests could order coffee, drinks or food. The same employees who check guests in can serve them a latte or cook them a burger, which also saves the chain money.”

    The story goes on: “Hilton Worldwide Inc.'s Hilton Garden Inn chain's new remodeling plan includes what employees call a ‘Starbuckian area’ with communal seating for the laptop set. InterContinental Hotels Group's Holiday Inn chain is piloting a new lobby concept dubbed the ‘social hub’ in an Atlanta-area hotel this month that will have banquettes with built-in televisions, high tables where solo travelers can plug in laptops and an area where guests can buy food and coffee to go. Marriott International Inc.'s Courtyard by Marriott chain is refitting hundreds of lobbies with touch screens so customers can check weather and flight information and bar stools to make them look more high-tech and sophisticated.”

    The larger point is this: No mater what business you are in, there is a cold reality with which you have to grapple. Irrelevance and obsolescence are inevitable…unless you constantly are engaged in the act of reinvention, innovation, and renewal that embraces the fact that the world is changing, that customers are evolving, and that nothing stays the same.

    That’s an Eye-Opener.
    KC's View:

    Published on: June 13, 2011

    The Los Angeles Times reports that the United Food and Commercial Workers (UFCW) union has come to a tentative agreement with representatives for Southern California’s three major supermarket chains - Safeway-owned Vons, Kroger-owned Ralphs and Supervalu-owned Albertsons - on the pension portion of a new contract. Terms of the agreement were not disclosed.

    However, the two sides reportedly remain far apart on health care provisions of a new contract.

    The Times writes that the agreement came a “day after unions representing truck drivers, firefighters, teachers and others pledged their support if Southern California grocery workers do decide to strike ... The union’s contract expired in March, and members have already authorized a strike. Negotiations are being conducted under the supervision of a federal mediator, and are continuing.”
    KC's View:
    I continue to believe that in the end, the two sides are going to find a solution. In a time when unemployment continues to be a problem, it doesn’t make sense to walk off the job ... and I hope that the needs of the rank-and-file will be more important than the egos of labor leaders. And, I think that the big three can’t afford to put a percentage of the customer base in play, which inevitably will happen if there is any sort of labor action.

    Published on: June 13, 2011

    Advertising Age reports on an annual study from Acosta Sales & Marketing about consumer behavior, saying that:

    • “Burdened by high gas prices and sluggish economic trends, only 23% of shoppers expect to spend more this year compared with 2010, while 13% will cut their budgets and 63% will spend about the same.”

    • “Shoppers have already cut their spending, with the average monthly grocery bill dropping to $279 per household in February. That's down from $298 a year earlier, including food and non food items.”

    • “The survey found 54% of shoppers saying they buy ‘a lot’ of store brands to save money, while 41% said about half of all purchases are store brands. And there are signs that private-label loyalties are here to stay. Nearly 30% of shoppers said they plan to stick with store brands even if their financial situation improves.

    “At the same time, younger generations seem more accepting of the products, with 52% of those age 18 to 44 saying private label is ‘a better value’ than branded products, compared with 46% of shoppers 45-54 and 47% of those 55 to 64, according to the survey.”

    • “While digital is gaining ground -- 40% of shoppers said they use online tools before entering a store -- old-fashioned circulars are still used in some way by 84% of shoppers, with 51% of those surveyed saying they clip coupons form them, and 28% saying they make their shopping list based on circulars, according to the survey.”

    Acosta conducts the, study, entitled “The Why Behind The Buy,” twice a year by surveying a panel of 8,500 U.S. households.
    KC's View:
    If you’re going to take a glass-half-full approach, you have to say that six out of ten people planning to spend “the same” as last year isn;t so awful.

    That said, there would be a collision coming between people who don;t want to spend more money on food and an industry that largely is talking about price hikes and cost increases. The winner - it could be Walmart, Costco, Winco, Aldi, or someone else - will be the company that effectively addresses this disconnect.

    Published on: June 13, 2011

    In Illinois, the Daily Herald has a piece about the new Roundy’s-owned Mariano’s Fresh Market scheduled to open tomorrow in Vernon Hills. Among the points made in the story:

    • Employees will wear “black pants, white shirts and black ties — a throwback to Bob Mariano’s early days with the Dominick’s chain.”

    • “The irony is that Mariano, who became Dominick’s chief executive, was the innovator of the fresh store concept for that chain, which emphasized an expanded produce section and prepared foods. The Vernon Hills store, not too far from his new namesake venture, was the first to offer it in 1995.”

    • “The array of choices at the new Mariano’s includes 550 beer selections, two dozen types of tomatoes, 5,000 store brands and 100 types of tea, according to the company. The store also will partner with local restaurants for offerings such as New York-style bagels from Kaufman’s deli in Skokie ... But it is the atmosphere, attention to detail and customer service Mariano hopes will set the store apart. The staff of 400 includes a piano player and certified dietitian, for example. In the early going, a decision was made to replace a straight line section of the store with a two story, glass atrium/cafe featuring live tropical plants as an indoor space where shoppers can relax.”

    The new Mariano’s is the second to be opened by the company; the first, in Arlington Heights, opened last July.
    KC's View:

    Published on: June 13, 2011

    The Buffalo News reports that Wegmans has decided to take foie gras off the menus of cooking classes scheduled at three of its stores this week, in a bow to objections raised by animal rights activists.

    There has been growing opposition to the serving of foie gras - goose liver - and even to the banning of the dish because it involves the painful force-feeding of ducks to make their livers swell up.

    “There is no humane way to force-feed an animal. The public has spoken, and made it clear that they will no longer stand for this egregious level of cruelty that occurs in foie gras production,” Morgan Dunbar, founder and director of Animal Allies of Western New York, tells the News.

    And, the story says, “The American Society for the Prevention of Cruelty to Animals has said foie gras production results in ‘unspeakable pain and suffering,’ and violates New York State animal cruelty statutes. Hudson Valley Foie Gras in Ferndale is one of two foie gras production sites in the United States.”
    KC's View:
    Watch the online videos of geese being force-fed, and it is hard to imagine anyone eating this stuff. I think Wegmans has made a smart move here.

    Published on: June 13, 2011

    The Atlanta Journal-Constitution reports this morning that “Wendy's/Arby's Group agreed to sell most of its Arby's division to a buyer formed by Roark Capital Group, an Atlanta-based private equity firm with $1.5 billion of equity capital under management. Roark's portfolio includes Moe's Southwest Grill, Schlotzsky's, Wingstop and other restaurant companies ... Wendy's/Arby's Group will keep a 18.5% ownership stake in Arby's, the second largest fast-food sandwich chain in the U.S. The aggregate transaction value is estimated to be $430 million.”
    KC's View:

    Published on: June 13, 2011

    Reuters reports that “Cory Moll, a part-time employee at an Apple store in San Francisco, is working to form a union to fight for better wages and benefits and to address what he says are unfair practices in the company's glass-and-steel retail showrooms.” The story describes it as “a rare move at a company known for its near-fanatical following and cutting-edge mystique.”

    Moll tells the paper that the core issues are “compensation, pay, benefits.” He says that after four years as an employee at the Apple Store, he makes $14/hour. “The minimum wage for 2011 in San Francisco, one of the most expensive cities in the United States, is $9.92 an hour,” Reuters writes.

    Apple is not commenting on the unionization effort.
    KC's View:
    Why do I have this feeling that when he’s not working at Apple, this fellow moonlights as a skunk at a garden party?

    I have no idea if this is just one malcontent, or the beginning of something bigger that could affect Apple. I hope that it is the former, but I hope that Apple doesn’t just dismiss it as the latter. As much as any retailer, Apple depends on the people on the front lines for the in-store magic that so many of us respond to.

    Published on: June 13, 2011

    • Walmart announced that it will donate up to $5 million to New York City’s cash-strapped Summer Youth Employment Program, which the city says will save 3,400 jobs.

    To this point, a total of $3 million had been raised from about 24 funders.

    "With this donation, thousands of young New Yorkers will have the chance to develop skills in the workplace and begin building their careers," said Mayor Michael Bloomberg. "Walmart has demonstrated its commitment to the economic vitality of our city, and the next generation of New Yorkers will benefit from the company's generosity."
    KC's View:
    Walmart doesn’t get everything right, but this is a savvy move by a company that desperately wants to break into the NYC market. Five million goes a long way ... and this certainly is a worthy cause, especially in a recessionary economy in which jobs for young people are scarce.

    Published on: June 13, 2011

    Forbes reports that has “severed “its affiliations with websites in Connecticut on Friday because of a new state tax on online purchases, retaliating against a measure that it opposed as ‘unconstitutional and counterproductive’.

    “The withdrawal by the retail giant means that web retailers and other marketers in the state will no longer receive a portion of the sales for funneling customers to Amazon, which has taken the same action in four other states that approved similar taxes.

    “The so-called ‘Amazon tax’ was included in budget legislation signed last month by Democratic Gov. Dannel P. Malloy, and the state expected to raise $9.4 million by collecting sales tax from online transactions for the first time. It requires Internet retailers to collect tax on sales generated through website affiliates in Connecticut.”
    KC's View:

    Published on: June 13, 2011

    Business Report has a story saying that Gareth Ackerman, chairman of Pick n Pay in South Africa, told the company’s annual meeting that there is no substance to reports that an acquisition of the company by Tesco could be in the works.

    Pick n Pay CEO Nick Badminton said that a bigger priority is trying to improve the company’s distribution systems now that Walmart’s acquisition of 51 percent of South Africa’s Massmart has been approved, making it likely that it will bring its advanced approach to distribution to the region.
    KC's View:
    I’m not doubting the veracity of Pick n Pay’s leadership, but I also suspect that an acquisition could take place eventually. Walmart’s investment in South Africa may prime that pump, and Pick n Pay tries to figure out what the best way is to compete with the Bentonville Behemoth.

    Published on: June 13, 2011

    • In Dayton, Ohio, WDTN-TV reports that soggy weather has forced Dorothy Lane Markets to postpone the “Honestly Local” food club program for a couple of weeks.

    “The spring was a little cool and wet, which caused everything to go behind," says Michelle Mayhew, Produce Manager at Dorothy Lane Market's Oakwood store. "Our asparagus came a little later, strawberries were two weeks behind and you are going to see your local corn about a week late".

    The “Honestly Local” program allows shoppers to prepay for a box of selected local produce items hand selected by Dorothy Lane Markets each week during the summer and fall, with pickups scheduled for Thursday afternoons at each of the three DLM stores.

    Business Week reports that United Natural Foods (UNF) is selling its nonfoods business, which includes HBC product lines, to L&R Distributors Inc.

    Terms of the deal were not disclosed. UNF said the move will allow it to concentrate on its core natural,organic and specialty foods business.

    • The New York Times reports that three “leading plastic bag manufacturers” have filed a lawsuit against the maker of the ChicoBag, said to be “an eco-friendly alternative,” charging that has engaged in “illegal trash-talking about plastic bag waste” by knowingly misstating statistics about the environmental impact of plastic bags.

    • The Wall Street Journal reports this morning that “the apple industry faces a potential public-relations headache in the wake of federal testing that found pesticide residues in 98% of America's second-most-popular fresh fruit, the highest rate among the produce screened by the U.S. Department of Agriculture in a yearly survey ... the department's study has prompted the Environmental Working Group, a Washington-based consumer-advocacy group, to put conventionally raised apples at the top of its latest ‘Dirty Dozen’ list.”

    Apple growers tell the Journal that the accusations “stir needless doubts” about the practices of farmers, who are doing nothing illegal or outside the boundaries of what is allowed by the US Department of Agriculture (USDA).
    KC's View:

    Published on: June 13, 2011

    New York Timescolumnist Nicholas Kristof had a strongly worded piece yesterday about food safety and the industrial farming system in the US. it is excellent - and either excerpting or paraphrasing some of its points would not do it justice.

    So here’s the link: Read it.
    KC's View:

    Published on: June 13, 2011

    On the subject of swipe fee regulation, one MNB user wrote:

    Banks and credit card companies should not be able to deny a retailer the right to offer a cash discount.  A business agreement should cover the use of their product, but putting further restrictions on a retailer strikes me as unfair.  But that’s it.  Anything more, such as limiting swipe fees, amounts to telling two private businesses how much one should charge the other for their services.  If a retailer doesn’t want to pay the swipe fees, don’t accept credit or debit cards.  If that will hurt business too much, then clearly the credit card companies are offering a service worth its cost.

    Is this really consumer protection?  Common credit card reward programs provide a point for every dollar spent redeemable for cash (for my credit card it’s 100 points  = $1.00).  This amounts to consumers saving 1% on every credit card purchase (I even get 1/2% with my debit which is why I never use it).  If this legislation passes, consumers could lose.  Will the savings at retail offset certain changes to credit card rewards?

    Another MNB user wrote:

    We are a small independent and will always work to be competitive with our chain neighbors but even if a few dollars flow to the bottom line just remember we  local merchants did not get a stimulus (read: bailout) package with your tax dollars.  Instead, we paid federal, state and local taxes.  The consumer ultimately wins no matter what. Let the banks try to make money the old fashioned way….earn it.

    From still another MNB user:

    As far as the swipe fees go, my fear is that the greedy credit card companies will get it back from little ‘ol me on an individual level if the stores are successful in paying less (up the interest rates even more?).  I don’t trust the stores will pass that savings on to me either (Cynical? Just a tad).  Grocery prices have gone up quite a bit lately anyway.  If it isn’t because of the weather it’s the swipe fees, etc.  They are starting to mirror the gas price model where most of the time there’s no rhyme or reason to the price scale.  Cynical me says it’s a battle of who wins the greed award.  Someone in “views” mentioned not taking certain cards as if that doesn’t happen, but my local restaurant won’t take Discover and neither does Frontier Airlines.  They must charge the highest swipe fee.  The restaurant told me that and Frontier just says “we don’t take Discover”.  Since we live in a world where a lot of people use plastic and in some cases (like rental car companies) the vendor doesn’t take cash we’re headed for a stand-off, shoot-out, knock down drag out fight and the consumer is clearly stuck (my view) in the middle ready to assume the prone position.

    We had a piece on Friday about a Wall Street Journal story that illustrates how the retail landscape is changing, and how traditional assumptions now need to be reconsidered:

    The story notes how, at most malls around the country, major department stores traditionally have served as anchor tenants, getting preferred lease rates because they were seen as driving customer traffic.

    These days, however, that isn;t so much the case. At many malls, the store that generates the most traffic and serves as a magnet for consumers is The Apple Store ... Which raises the following question: If you owned a mall, what is the one store you’d like to have in the mix - Macy’s, JC Penney, or Apple?

    Then, take the question from another direction. In your store, is there a product or category that you are giving too much attention to, that no longer merits the benefit of the doubt? What is it ... and what are you doing to face reality?

    One MNB user responded:

    Your Apple store piece was thought provoking.  While it is interesting to think about how segments of stores need to be reevaluated, the comparison of Apple to JC Penny is an example of figures not telling the whole story.  In comparing Apple to JC Penny, it is important to take into account when their leases were signed.  JC Penny rent averaging $489,000 certainly must= take into account the average age of their leases. I’m guessing JCP leases are 20 years with multiple option periods and a vast majority were signed between 20 and 40 years ago.  Not only were prices cheaper then, the theory of subsidizing an anchor was more prevalent then.  Today, pro-formas don’t account for the ability of a developer to subsidize one store for another.  Certainly smaller shops will pay more rent, but developers can’t afford to lose money on their big box space; banks won’t allow it.

    Also, while Apple may have sales that rival some big boxes, their customer count does not.  The average expenditure is significantly higher.  Comparing their sales with a department store does not provide an accurate measure of traffic generated.  Does this mean that an Apple store isn’t attractive to other tenants?  Certainly not; the cool factor of Apple will enhance the overall image of a mall.  That is likely worth more to mall developers than the actual traffic they generate.

    Another MNB user wrote:

    To what extent do the people who shop at Apple stores also shop at other stores in the mall? If Apple customers are also shopping at other stores it is one thing. If Apple store customers go to the mall just for the Apple store it is quite another thing. I don't know the traffic patterns, I'm just asking.

    For what it is worth the Mall of America has a Microsoft Store right across the hall(?) from the Apple store. The Microsoft store is about twice the size of the Apple store but seems to have about half the customers. I don't know the number of buyers of goods and services. I use Linux whenever possible.

    I know this. There is a mall not too far from my house that I would almost never go into if there were no Apple Store there. And sometimes when I’m there, I actually do other stuff.

    On the subject of internet sales taxes, MNB user Geoff Harper wrote:

    One of your readers said: “It’s crazy to expect a business to keep track of more than 7,500 state and local tax laws.  Bezos is right to resist this effort and I hope he prevails.”

    Wait a minute!  Isn’t that exactly what bricks-and-mortar retailers have to do for every venue in which they want to sell goods?

    The harder that Mr. Bezos pushes this issue, the less I want to do business with him.  It’s time to get over it and compete.

    I agree with your reader who opposed a national solution, in that it can only cost the consumer more money.  Local and state sales taxes, much as we hate them, are an important part of financing local services, including schools and first-responders.  Time for Amazon to stop cheating the citizens and compete.

    From another MNB user:

    Bezos is watching our national political landscape and realizing that there is an extremely slim chance that  any legislation will be passed in a timely manner.  This allows Amazon to continue happily along in their unfair competitive advantage driving other brick and mortar retailers under.  Consumers need to stop taking advantage of this broken system and demand a solution on a national level.  Our country is in enough debt without us intentionally exacerbating the problem to save ourselves a little sales tax.  Keep using your local retailers as a “show room” for Amazon and you may not have retailers in your neighborhood anymore and you will only have Amazon as an option.  Do you think they will continue to have low prices at that point?  They are not looking out for YOU.  They are looking out for Amazon.

    So your argument is that Amazon’s grand strategy is to put every brick-and-mortar competitor out of business and then hike prices and no longer offer discounts?

    I have enough real stuff to worry about. This particular concern doesn’t even break into the top 100.
    KC's View:

    Published on: June 13, 2011

    In game six of the National Basketball Association (NBA) finals, the Dallas Mavericks defeated the Miami Heat - and its much vaunted trio of LeBron James, Dwayne Wade and Chris Bosh - 105-95, winning the franchise’s first-ever championship four games to two.
    KC's View:
    Great business metaphor here.

    Before the season began, the Miami Heat was the presumptive favorite to win the championship because it had the best three players in the league.

    But you have to play the games. And sometimes, just having the best three players isn't enough. You have to have the best team, not to mention the best strategy and the best implementation.